Speaking in Hong Kong, Petr Kocourek, an Executive Director in MSIM's Global Asset Allocation Team, said: "In the US, the Fed's 'data-driven' approach has led to a major focus on inflation numbers. The slowdown in the US economy seems to be ending; although, while unlikely now, last year's Big Question of whether a recession will occur in 2007 could still be relevant if the Fed has to take rates to 6%."

Discussing the outlook for Japan, Mr Kocourek highlighted that deflation is now over but policy error remained a risk, especially if there is "too much tightening too soon". He added that although inflation is not a problem for now, wages were rising as the labour market improved.

"Looking at valuations, equities remain cheap in most developed markets relative to bonds," said Mr Kocourek. "We think that further economic growth will support earnings and valuations, and we maintain an overweight on equities. We are also overweight on emerging markets, based on valuations and dynamics."

MSIM is the asset management division of Morgan Stanley and has over 450 investment professionals around the world, with more than $448 billion in assets under management as of September 30, 2006. The division offers one of the asset management industry's broadest product selections covering all major markets, asset classes, and investment strategies; a competitive track record, and excellent client service. MSIM's Hong Kong office opened in 1992 and serves as the regional headquarters for the Asia ex-Japan.

Petr is a member of the Global Tactical Asset Allocation portfolio management team and is responsible for quantitative techniques and asset allocation. He joined Morgan Stanley in 1997 and has ten years of investment experience. Prior to joining the firm, he worked as a freelance scientific programmer at Delft University of Technology and before that, at the Netherlands Organisation for Applied Scientific Research (the TNO). Petr received a B.S. in physics from Delft University of Technology. Petr is based in Europe.